HONG KONG, Jan 28 (Reuters) - China shares could post their
best daily gain in two weeks on Monday, lifting the Hong Kong
market, as investors welcomed comments from a senior central
bank official seen as a tacit admission that bank profits needs
to be protected.

Pan Gongsheng, a deputy governor of the bank, said that the
pace and timing of freeing interest rates must consider banks'
profitability and capability of replenishing capital, as the two
factors affect credit supply to the whole economy.

The Hang Seng Index went into the midday trading
break up 0.5 percent at 23,688.7 after briefly breaching chart
resistance at about 23,708, the peak on May 31, 2011. The China
Enterprises Index of the top Chinese listings in Hong
Kong rose 0.8 percent.

In the mainland, the CSI300 of the top Shanghai
and Shenzhen listings jumped 2.2 percent, while the Shanghai
Composite Index climbed 1.6 percent, on track for their
best daily showings since Jan. 14.

If they hold onto gains on the day, both indexes would have
also broken out of a trading range that has contained their
movements for about two weeks, suggesting further gains are
possible.

"Mid-sized Chinese banks are going to outperform bigger
rivals, partly given their lower base, but also because they
have been more aggressive in innovating financial products,"
said Hong Hao, Bank of Communication International's chief
strategist.

Mid-sized banks extended their strong start to the year.
China Minsheng Bank jumped 5.4 percent to its
highest in five years in Shanghai, and gained 2.4 percent in
Hong Kong.

Minsheng Bank's Shanghai shares are now up 25 percent in
January after gaining 33 percent in 2012. Reports last week
suggest Minsheng is among the top five most sought-after stocks
among mainland fund managers.

Investors also cheered a plan to double the number of
A-share listings eligible for short selling or margin trading,
bolstering shares of Chinese brokerages.

Profits earned by China's industrial companies rose 17.3
percent in December from a year earlier to 895.2 billion yuan
($143.91 billion), official data showed on Sunday, as a
fourth-quarter recovery helped offset weaker corporate results
in the third.

But in a sign that this recovery does not encompass all
sectors, shares of China Cosco Holdings
dived after the world's largest bulk cargo fleet operator said
it expects a second-straight year of losses in 2012.

Its Hong Kong shares plunged 5.8 percent to its lowest in a
month, while its Shanghai listing faces the prospect of
delisting if the company does not turn a profit in 2013.

Under China's securities regulations, companies that report
two consecutive years of losses get placed in the "special
treatment" category, which limits the daily trading movement of
their shares to 5 percent instead of 10 percent.

Kweichow Moutai dived 4.7 percent, hit by a
Credit Suisse downgrade from overweight to neutral after the
company last week posted below-expectations preliminary
corporate earnings.